Alibaba Invests In Mobile Wallet Startup Paytm, Consolidating Foothold In Online Commerce In India

Alibaba Group Holding Ltd. has agreed to invest in One97 Communications, an Indian startup that operates Paytm, a mobile payments service and online shopping site, the Chinese e-commerce company said in a press release Tuesday. The transaction deepens Alibaba's foray into India, which includes an investment in Paytm's online commerce rival Snapdeal.

Ant Financial Services Group, an Alibaba affiliate, which invested in Paytm in February, will join this round of investment as well, according to the press release. Paytm will use the money to expand its business and invest in marketing, technology and talent.

The companies didn't provide details of the terms of the agreement. However, Alibaba and Ant Financial have invested $680 million to increase their stake to 40 percent from the 25 percent that Ant picked up in Paytm's parent company One97 in February, Economic Times newspaper reported, citing two people with knowledge of the transaction. In June, Reuters had reported that this deal could be worth over $600 million.

“India is an important emerging market with strong e-commerce potential," Daniel Zhang, CEO of Alibaba Group, said in the statement. "This investment will further expand Alibaba Group's global footprint to India’s thriving mobile commerce market."

As growth in China slows, Alibaba is one of many large Chinese companies that are looking to India, the fastest-growing major economy in the world. Smartphone maker Xiaomi Corp. is expanding its manufacturing into India, its largest market behind China, and Tencent Holdings Ltd. has invested in Indian healthcare startup Practo Technologies Pvt. Ltd.

India's growth potential got another boost Tuesday with the country's central bank, the Reserve Bank of India, cutting a key interest rate by 50 basis points against a widely anticipated 25-basis-point cut. The move signals the bank's growing comfort with current inflation levels, and bodes well for domestic demand ahead of the holiday shopping season.

With Paytm's mobile payments technology "we look to bring half a billion Indians to the mainstream economy and help millions of small businesses leverage this large m-commerce opportunity," Vijay Shekhar Sharma, the startup's founder and CEO, said in the release.

Paytm has recently crossed 100 million Paytm Wallet users, who carry out over 75 million transactions every month, according to the statement. The New Delhi startup will soon also start a payments bank, allowing users to make deposits with it, transfer money and so on, although India doesn't allow such banks to make loans. Paytm counts SAIF Partners, Sapphire Ventures and Silicon Valley Bank among its investors.